Board Talk: Sale Price Limits

Sale Price Limits

Steve-Inwood: My question is: Has anyone disallowed a co-op sale solely on price and if so, what was the outcome? It is more difficult to weed out comparables on estate sales because online databases do not have a data element indicating what type of sale it is. While we can’t control the market, we think we can watch out for the remaining shareholders to some degree.

Anon: My ex-husband wanted to buy me out. I gave him a break on the price – not a fire-sale price by any means, and one within appropriate bounds of a soft market where the co-op has been up for sale many weeks. That price was too low for the board, which wants to keep average sales prices up. That’s great in theory, and in a normal market. But this market is down and it is cruel to force homeowners into financial turmoil because of some unrealistic notion of what an apartment is worth. So we’re stuck. We can’t get buyers to pay a price that the board will accept. In effect, we’re not allowed to sell our apartment.

Steve-Inwood: I am conflicted on your circumstances, Anon. Living in a co-op to me means cooperating with my neighbors and fellow owners – seeking a common good, if you will. We are also living in a time of “fair value” where assets are marked to market (one sees this a lot in the financial industry). Also, with the recent heavier allowance with online databases to establish value, gone is the reliance one used to place on real estate professionals to establish a fair price and weed out exceptions with comparables. One doesn’t even have to use an agent for a co-op sale at all. Selling below current market, even for an estate, hurts other shareholders of similar units who also have their units on the market. Our co-op also owns a former rental unit which we have renovated and is for sale. A below-market price also hurts the price we could get for this unit (which is owned by all shareholders). Have you considered that your wish to cut your ex a deal could hurt the other owners and neighbors?

Anon: “Cut a deal” is a grossly exaggerated. To give additional information: I’m in financial straits, and if I don’t sell my half of the apartment soon I could go under. There’s a domino effect to everything. The even larger point is, we simply can’t get what the board thinks the market is.

Steve-Inwood: What can I say? I was trying to make the point that living in a cooperative means having to take into account everyone’s needs – not just my own.

Citykid: A person should be able to sell their home for whatever price they choose. The argument that allowing a distressed owner to sell quickly at a reduced price would somehow harm the “corporation” is nonsense. The only person who will be harmed is the selling shareholder. Ultimately, the market will dictate the long-term trend in the building or marketplace. Anyone analyzing the market should be able to recognize a distressed sale. If there isn’t a way for appraisers to recognize this very real and valid data then there is something wrong with the appraisal process. And who’s to say that a particular buildings prices aren’t artificially inflated by after-market incentives that make the closing price appear higher than what it really is? Mine is.

RLM: While I agree that co-op boards often do things that a “professional” might not... co-op boards being volunteer positions, rather than paid ones... I think name-calling is counterproductive. And as a lawyer reminded me recently, there’s no law against stupidity or shortsightedness. Unfortunately.

HabitatReporter: Attorney Jeff Reich, a partner at Wolf Haldenstein Adler Freeman & Herz, offers these comments: “Steve raises an issue that a number of cooperatives have had to grapple with during the great economic downturn of 2008-2009: how to best protect the shareholders of a cooperative from what a board perceives as a below market price? This concern has led to a number of creative practices, such as parties entering into contracts for one – higher – price and closing at another – lower – price through the use of an array of seller concessions and credits.

“While there are not many reported cases regarding board rejections based solely on price – possibly because most boards will not provide a specific reason for a rejection – those that have been reported have held that a cooperative board cannot reject a purchaser solely on the grounds that the purchase price did not exceed some minimum acceptable floor price.

“While I am unaware of any reported cases regarding a board rejection strictly over the purchase price in the absence of any floor price policy, I believe that the specific economics of a particular transaction would play a large part in how a court would decide such a matter. In the instance where an apartment was being sold for an amount significantly below what would generally be considered a fair market value for the apartment (without extenuating circumstances relating to the condition of the apartment), a rejection may possibly be upheld by a court under the Business Judgment Rule.

“Unfortunately, given the litigious nature of our society, whenever a board is considering rejecting a purchase application on financial grounds or because of a negative background check, it is usually better to do so prior to having an interview in order to protect against potential discrimination claims.”

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